PERSONAL FINANCE BLOG

How 0 interest credit cards can help you

What Are 0 Interest Credit Cards?

There are many ways of putting credit on a card, but generally they will all incur interest if you don’t pay the balance off within the correct amount of time. 0 interest credit cards offer an interest-free period of time when balance transfers and purchases will not rack up interest charges. They can be very tempting particularly if you are struggling with debts, but you have to understand how they work so that you are not stuck with unexpected bills and interest charges at the end of the interest-free period. Using them responsibly means that these cards can work out to be an excellent deal and a great way to pay off debts.

Things to Look out For

Card spending accounted for almost 80% of all retail sales in the UK in 2017 as almost all of us now use cards in preference to cash. If you are going to take control of your spending though, you need to try a few special tactics.

The big thing to remember is that you should try and keep cards separate if you are going to try one with an interest-free period, meaning that you use one for balance transfers and a different one for any new purchases. This is because the provider will treat a balance you have transferred over to a card differently from purchases you make on it.

If a card has a 12-month interest-free period for balance transfers and you transferred £1200, you could pay £100 a month and the balance will be cleared in a year without any interest being charged. If it also offers interest-free purchases for three months, then as soon as that three months is up you are liable for interest on those purchases. Frighteningly, interest will accrue until you pay off both the purchases and the original balance transfer. This is because any payments you make will go towards paying off the cheapest debt, and as that is the balance transfer none of the purchases will be paid off until the whole debt is cleared.

As you can see, this makes it almost pointless to have taken out an interest-free card in the first place, but keeping purchases separate on another card means you are protecting your offer and paying off the balance transfer without extra interest charges. If you really must have purchases and balance transfers on the same card, then look for providers that give an interest-free period for purchases that lasts as long as the interest-free period for the balance transfers.

The Dangers

Unfortunately, the card companies are not offering these special rates to help customers out, they are hoping that the balance will not have been paid off at the end of the interest-free term, or that borrowers will have spent more on their card. It is up to you to police your spending and how you use your card so that you don’t fall foul of these tricks.

The hardest part is remembering when the interest-free period ends, as this can be many months and card companies don’t always alert you to the interest-free deal ending. You should also make sure you pay at least the minimum amount each month as a missed payment can negate the agreement, meaning that they will take the interest-free period away from you and start charging you interest on the whole balance.

How Can 0 Interest Credit Cards Help?

As you can see 0 interest credit cards can be used to your advantage, but if you are not careful they can cause you to rack up further debts instead of paying off just the ones you started with. Bonsai Finance can help find the perfect card for you, you just need to make a note of when the interest-free period ends and make sure you have paid off all your balance by then. Also, try to keep balance transfers and purchases on different cards so that you can be clear when the debts are being paid off.

They can lead you to disaster, but with a little forethought and planning these cards can help you get out of debt faster. Planning and playing the system is key, as they can help you concentrate on paying off your debts without having any extortionate interest charges.

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